Transcript Document

MAY 2014
Help to Buy has helped more than 27,000 people buy a new
home
Lenders cannot afford to treat all of their customers the same
when it comes to interest rate rises, HML’s John
Grimbaldeston tells Credit Today
The British Chambers of Commerce has revised upwards UK
growth for 2014 to a seven-year high
HML News
John Grimbaldeston,
director of products and
marketing, speaks to Credit
Today.
It appears that everywhere you look at the
moment, there is an economist or other market
commentator discussing when the interest rate
will rise and what this will mean for customers.
The general consensus seems to be that there
are many mortgage customers who have
either never experienced a rate rise since
owning a property or forgotten what one feels
like, and the increased repayments could
come as a shock to the lifestyle they are
accustomed to.
There is also talk of mortgage prisoners i.e.
homeowners who are unable to switch to a
better deal and will therefore have to remain
with their current loan. Of course, while it is
good practice to inform all mortgage
customers about an increase in monthly
repayments, HML firmly believes that it is even
better practice to focus now on those who are
the most vulnerable customers.
Vulnerable customers need to be at the
front of the queue
Lenders need to start engaging with their most
vulnerable customers and assess how these
individuals would be able to meet any
additional monthly repayments. The Financial
Conduct Authority explicitly told lenders in its
Thematic Review published in February that
they need to engage with their customers over
their susceptibility to interest rate increases.
There are many ways lenders can do this;
HML’s preferred method is to segment our
clients’ portfolios into different customer
groups, allowing us to take a view of those
who require lender support first.
And with £37 billion assets under management
for dozens of clients, including building
societies and major banks, we don’t just have
a view of one mortgage portfolio, but several.
Our advanced analytics allow us to model how
customers have been impacted by rate
changes over the years, from negative equity
and repossessions to arrears and interest-only
mortgages.
Completing an income and expenditure review
with a customer is another essential step if a
lender is to identify how much disposable
income they have in comparison to their
mortgage repayment. Combined with credit
bureau and behavioural data and captured
Potential Impairment Indicators, this
information ensures we can build a complete
picture of a mortgage customer, their
affordability position and their account history,
indicating how we believe they will cope with
mortgage payment shocks.
However, while I could continue with how
lenders can build a tailored customer contact
strategy - which should include timely debt
advice where needed - it is also important to
remember that many customers need to step
up to the plate and take responsibility for
payments.
Mortgage rates have been low for a historically
long time, and not every customer is in a
vulnerable position. Those who have been
making overpayments will now be in a much
stronger position, and for those who have not,
it is essential they remember that paying their
mortgage is a priority, not a luxury.
When it comes to interest-rate susceptibility,
we are all in this together – but lenders need to
ensure they give their most vulnerable
customers extra support both now, and
following base rate rises.
HML News
HML is celebrating ten years
of operating in Derry.
. “I’d like to thank all of our Derry staff for their
hard work, particularly those individuals who
have remained at HML since we launched in
Northern Ireland in 2004.”
HML has been servicing Irish lenders’
portfolios since 2005, with the Derry office an
important strategic move for HML’s expansion
in Ireland.
Mel Smith, director of strategy and
planning for the chief operating
office and who is based in Derry,
commented: “It’s certainly an exciting time
Currently based out of Ulster Science &
Technology Park, the Derry office has grown
from a staff of around 25 in 2004 to some 330.
The Derry office has been central to HML
expanding in the Republic of Ireland, with the
company making significant contract wins in
the country.
for HML. We celebrated 25 years last year, as
well as launching a new operational base in
Dublin, enjoying double-digit profit growth and
took home numerous industry awards.
HML has over 25 years of experience in the
mortgage administration sector, and chose to
open an office in Derry in order to draw upon
the financial expertise in the city at a time
when many financial companies chose to
outsource abroad. There are 62 members of
staff who have been with HML in Derry since
2004.
HML’s Derry site has acted as a call centre for
Children in Need since 2008, raising
thousands of pounds for local charities
including Foyle Hospice and has supported
local schools, such as during the Time to Read
initiative.
Andrew Jones, chief executive
officer at HML, said: “I am delighted that
HML’s Derry site is celebrating ten years, and
we have certainly substantially grown during
that time. Opening a site in Derry was an
important strategic move for us, drawing upon
the experienced resources in the area and
helping us to take advantage of growing
opportunities in the Republic of Ireland.
“Celebrating ten years in Derry is testament to
our experience and longevity, which have also
contributed to our leading ratings. Our UK
residential primary (sub-prime) rating by Fitch
is the highest in Europe and our prime rating is
the equal highest rating of any servicer in the
world.
“I’d like to thank all HML staff in Derry for their
hard work over the years, and look forward to
seeing how we grow and develop in the
future.”
HML News
David Kelly has spoken
exclusively to the Irish
Independent about debt
advice for customers in
mortgage arrears.
Ironically, many customers might get an initial
sense of relief or even euphoria when they
decide not to engage with their lender. But it’s
a very false and misleading feeling. Breaking
off communications may delay otherwise
difficult decisions but it makes very unwelcome
outcomes much more likely. The likelihood of
repossession, for example, increases
significantly where there is no engagement.
You can read the article below:
On the other hand, we find that where
engagement is restored, outcomes can
improve significantly. And the earlier
customers who are in financial difficulty can
get can advice that they trust, then the better
the outcome for both the customer concerned
and for the lender.
Why some banks are paying for
independent debt management support for
their customers in mortgage arrears
HML manages mortgages and other loans for
a range of banks in Ireland and the UK with a
total value of approximately €50 billion. This
gives us a useful perspective into how the
banks in the two countries compare in terms of
dealing with mortgage arrears and whether
there are any lessons for banks in Ireland from
their UK counterparts.
The first thing to say is that it is clear now that
the Irish banks have moved into a new phase
in dealing with the mortgage crisis. After what
all sides will agree was a very slow start –
linked no doubt to both the scale and the
sensitivity of what was an unprecedented
crisis for this country - the banks are now
addressing the mortgage arrears problem with
real vigour and on a scale that was hard to
imagine even 18 months ago.
However, while the banks are able to engage
with the majority of their customers, it is also
clear that for some customers, their
relationship with their bank has been
destroyed almost beyond repair. Confidence
and trust in the bank has collapsed and
contact has been broken off. For customers in
this situation, this means that it is much more
difficult for them to get proper advice on how to
deal with their problem and, for the banks, it
means that it is almost impossible to try to find
a workable way forward.
The key here is trust. In the midst of a
mortgage crisis, unfortunately, some
customers simply won’t be able to bring
themselves to trust the advice they are getting
from the bank – regardless of how fair or
balanced that advice is. They may have lost
confidence in the bank or they may be afraid to
share the details of their financial position with
the institution in question.
In the UK, banks are responding to this by
putting in place access routes for their
customers to independent debt management
agencies.
Many people are surprised that banks might
be willing to encourage – even to pay for –
independent advice on debt management
issues for customers who are, effectively,
refusing to talk to them. But in our experience
they are. The reason is simple. In one sample
of customers we manage on behalf of a UK
bank, for example, over 85% of customers
who received independent advice on
managing their debts paid more back to the
bank than they were doing previously.
Continued on the next page
HML News
In that sample, the bank saw an increase in
“cash collected” of some 50% as a result of
helping the customer get independent, trusted
advice.
However the exercise works for the customer
as well as the lender. Customers in our
sample talked of feeling a sense of control
returning over their financial affairs. They talk
of regaining self-respect and being able to
sleep again at night.
In the UK we now work closely with an
independent debt solutions agency to whom
we can immediately refer customers whom we
believe would benefit from their
assistance. The banks involved encourage us
to do so – to the point of empowering our
customer agents to initiate the referral because they know that the outcome will likely
be better both for them and for their customer.
Once the referral is made, the customer then
deals directly with an appointed case-manager
at the relevant debt management agency who
will help them to develop a Debt Management
Plan (up to and including an Individual
Voluntary Arrangement / IVA) and manage it
out over time.
However the key is making that referral as
easy and speedy as possible. Our agents can
make the referral from the phone call on which
they are engaged with the customer;
seamlessly putting the customer in touch with
an agent who can begin work immediately.
Irish banks have made tremendous strides in
recent months and some banks are now
experimenting with referring certain customers
to independent advisors. However, it is
occurring now only on a relatively small scale.
Perhaps the next challenge is how to put in
place the type of broader infrastructure that
could cope with the likely demand that exists
for this type of service.
The outcomes we’ve seen for both sides of the
mortgage arrears crisis suggest this could
make the effort very worthwhile.
You can also read the article on the Irish
Independent online.
Industry Statistics
Consumer Prices Index
BoE Base Rate
Unemployment Rate (ONS)
Halifax House Price Index
APRIL ‘14
MARCH ‘14
FEB ‘14
1.8%
1.6%
1.7%
MAY ‘14
APRIL ‘14
MARCH ‘14
0.5%
0.5%
0.5%
JAN-MARCH ‘14
DEC-FEB ’13/’14
NOV-JAN ’13/’14
6.8%
6.9%
7.2%
APRIL ‘14
MARCH ‘14
FEB ‘14
Down 0.2% on MAR
Down 1.1% on FEB
Up 2.4% on JAN
Average price
Average price
Average price
£177,648
£178,249
£179,872
MARCH ‘14
FEB ‘14
Up 8% on MAR
Up 4% on FEB
Down 6% on JAN**
£16.6 billion
£15.4 billion
£15.2 billion
JAN-MARCH ‘14
OCT-DEC‘13
JULY-SEP ‘13
6,400
6,100
7,200
Gross Mortgage Lending (CML) APRIL ‘14
Home Repossessions (CML)
*Date reflects what the statistic was during that period, rather than
when the statistic was published
** January figure has since been revised upwards to £16.1 billion
Industry Statistics
Consumer Prices Index
Unemployment Rate
The CPI increased by 0.2% on March to 1.8%.
The largest contribution to the CPI’s rise came
from transport costs, particularly motor fuels
and air fares. The timing of Easter was noted
as having a likely impact on the index. The
increase was partially offset by a fall in food
costs.
The unemployment rate for January to March
stood at 6.8%, representing 2.21 million people.
Compared to the previous three months, the
number of individuals in employment rose by
283,000. In addition, the number of unemployed
people declined by 133,000.
BoE Base Rate
Gross mortgage lending
Halifax House Price Index
Gross mortgage lending stood at £16.6 billion in
April, an increase of 8% on March and 36% on
the same month in 2013, when lending reached
£12.2 billion. It represents the highest total for
an April since 2008, when it reached £25.7
billion.
The average price of a home declined by 0.2%
between March and April to reach £177,648.
CML chief economist Bob Pannell
said: “The implementation of the Mortgage
The Bank of England kept the base rate at
0.5%, as well as the stock of asset purchases
at £375 billion.
This represents an annual increase of 8.5%
from April 2013.
Stephen Noakes, mortgages director
at Halifax, said: “Prices fell marginally
during the month representing a second
successive monthly decline.
"Although mortgage approvals have now
declined for two consecutive months and
property transactions fell in March, on an
annual basis housing demand still remains
strong. Housing demand continues to be
supported by an economic recovery that is
gathering pace, rising consumer confidence,
low interest rates and wage growth finally
beginning to outgrow consumer prices.
However, with supply of properties being slow
to respond to market conditions, stronger
demand in the past year has resulted in
upward pressure on house prices."
Market Review (MMR) from late April has made
it a little harder to interpret recent data. As we
have pointed out previously, there may be some
disruption to the monthly pattern of activity while
MMR procedures bed down.
“The Bank of England has signalled that macroprudential measures to limit the housing market
upturn are likely in the near future, and possibly
in the very near future.”
Home Repossessions
Repossessions rose from 6,100 to 6,400 from
Q4 2013 to Q1 2014, the CML has revealed.
However, this represents a 20% decline on the
same quarter in 2013.
Around 1.7% of homeowners had arrears of at
least three months’ mortgage payments or
more.
Top News Stories
Two-thirds of mortgage
borrowers are vulnerable to a
rise in interest rates.
.
This is according to a new report by the Daily
Telegraph’s Your Money, which analysed
official lending data.
The borrowers that are vulnerable have variable
or floating rates, which are likely to increase
should the base rate will pushed up by the Bank
of England.
The analysis reveals that in the last seven
years, the proportion of variable rate mortgages
has risen from 52% to 67%.
Nigel Turner, chief commercial officer
at HML, said: “As a sector, we need to keep
an eye on the potential impact of base rate
increases over the next 12-18 months. We
already have plans in place to segment the
portfolios we manage and proactively engage
with customers over their susceptibility to
interest rate increases - something which the
Financial Conduct Authority explicitly told
lenders to talk to customers about in its
Thematic Review published in February.”
The recession is officially
over, according to the
National Institute of
Economic and Social
Research (NIESR).
The UK’s GDP will exceed its previous 2008
peak over the next few months, with growth of
2.9% forecast for this year. However, per capita
GDP will not exceed its previous peak until
2017.
According to the independent research institute,
it sees “few signs of domestic inflationary
pressures”, although it did note uncertainty
around monetary policy.
In particular, it pointed to “the path of interest
rate rises, where market expectations remain
for a rate rise in early 2015; the new equilibrium
level, which the Bank has said is likely to be
materially below 5%; and the exit strategy for
quantitative easing, in particular whether this is
used as an active policy tool”.
Nationwide has urged the
Bank of England to avoid
taking immediate steps to
‘correct’ the housing market.
The building society said there may be
“unintended consequences” for the rest of the
UK if the central bank attempts to rein in
London’s housing market.
Commenting on Help to Buy, Nationwide’s
finance director Mark Rennison told the
Daily Telegraph that the scheme “accounts for
only 3-4% of housing transactions, in London
it’s 2% or less”. As such, it was “implausible” to
link climbing house prices to Help to Buy.
He added that the housing market in parts of
the UK, such as the north-east, could suffer if
the Bank was to clamp down on London’s
sector.
Of all mortgages secured under Help to Buy’s
first phase, Nationwide accounted for almost a
third of the total.
.
Top News Stories
Help to Buy has enabled
more than 27,000 people to
buy a new home.
The Treasury has revealed that around threequarters of properties bought through the
scheme are new-builds, with private house
building up by a third since Help to Buy was
launched.
The mortgage guarantee part of the scheme
has proven to be the most popular in the northwest, while the equity loan new-build part has
experienced its highest take-up in the southeast.
Completions under the mortgage guarantee
scheme in London represent 0.6% of all
mortgage lending. The average across the rest
of the UK is 1.3%.
The government also highlighted the focus on
responsible lending. Under the mortgage
guarantee scheme, the average house price
stands at £151,597, with the typical value to
income multiple just over three times the
salary.
Stewart Baseley, the Home Builders
Federation’s executive chairman,
said: “After a number of years when house
building levels fell to a record low level, all
indicators show supply is now increasing
rapidly.
The Help to Buy Equity Loan scheme is
supporting demand for new-build homes - and
if buyers can buy, builders can build. Its
extension provides certainty about longer-term
demand that will allow the industry to plan
ahead, rebuild capacity lost in the downturn
and ultimately deliver sustainable increases in
supply.”
UK growth will reach a
seven-year high in 2014,
according to the British
Chambers of Commerce
(BCC).
The BCC has upgraded its GDP growth forecast
to 3.1% from 2.8% in 2014, which would
represent the highest growth rate since 2007.
Its 2016 forecast remains at 2.5%, although it
has revised upwards its 2015 forecast from
2.5% to 2.7%.
It noted that the base rate is expected to rise to
0.75% in Q1 2015, which is two quarters earlier
than was previously thought.
BCC director-general John Longworth
said: “The task at hand is to ensure that 2014
is not ‘as good as it gets’ for the UK economy.
Everything possible must be done to avoid
slower growth in future.
“We need to invest, innovate, export and build.
While we forecast business investment to grow
strongly over the next three years, that
investment is rising from an extremely low base.
“To sustain investment momentum into the
future, the government and the Bank of England
need to give businesses the confidence they
need to invest.”
He urged the Bank to keep the base rate low for
as long as possible and to ensure future rate
rises are in small and gradual increments.